Singapore consumer prices post first rise in two years

SINGAPORE — After more than two years of decline, consumer prices edged up last month, as private road transport costs rose at a faster pace and prices for most goods and services used to compute inflation increased.

But data released on Monday (Jan 23) also showed that headline inflation for the whole of last year was at its weakest in three decades, although the tide is expected to turn this year as oil prices recover and price-dampening effects from Budget 2016 measures fade.

The All-Items Consumer Price Index (CPI) rose 0.2 per cent year-on-year last month, said the Monetary Authority of Singapore (MAS) and Ministry of Trade and Industry (MTI), marking the first positive on-year print since October 2014.

Dr Tan Khay Boon, senior lecturer at SIM Global Education, said: “With the mild inflation recorded in recent months, Singapore may be relieved from a state of negative inflation and moving towards mild positive 
inflation.”

Last month, the price increases were led by education, healthcare and household durables and services. Private road transport costs accelerated from the 0.2 per cent increase in November to 1.7 per cent in December due to higher petrol prices and car park fees. Services inflation also saw an uptick due to higher holiday expenses.

Price declines were limited to housing and utilities, communication, and clothing and footwear.

For the whole of 2016, headline inflation came in at -0.5 per cent for the second consecutive year, which is the weakest since 1986, noted Ms Selena Ling, head of Treasury Research & Strategy at OCBC Bank.

MAS Core Inflation — which excludes the costs of accommodation and private road transport — came in at 1.2 per cent in December, down slightly from 1.3 per cent in November.

Core inflation, which has been increasing gradually since the start of last year, is closely watched by economists as it reflects items that have greater cost pressures on low-income households. For the whole of 2016, core inflation rose to 0.9 per cent, from 0.5 per cent the year before.

“Higher consumer prices in the midst of an economic slowdown will not be good, as the real purchasing power of consumers will be eroded when nominal income remains stagnated due to poor economic prospects,” said UOB economist Francis Tan. “However, it is currently too early to make such a conclusion,” he added, noting healthier numbers in recent economic data.

Going forward, MAS and MTI said they expect imported inflation to rise modestly on the back of a turnaround in global commodity markets and higher oil prices.

Domestically, cost pressures are expected to be muted, however, as a slack labour market and subdued growth environment “constrain the extent of cost pass-through to consumer prices”, MAS and MTI said.

The official forecast is for headline inflation to pick up from 0.5 to 1.5 per cent this year, and core inflation to average between 1 and 2 per cent.

“Energy-related components are projected to contribute positively to inflation in 2017, while the temporary disinflationary effects from budgetary measures will fade.

However, the increase in core inflation will be gradual, given the absence of more generalised demand-induced price pressures,” MAS and MTI said.